Why are insurance costs going up?
Over the last 18 months insurance premiums have gone up by nearly 30%, with significant increases in high flood risk areas, such as the Hawkes Bay. Whilst pricing is starting to stabilise, it is still a large cost for many people whether it comes to their home, business or both. Why have costs risen so much and why is it getting harder to even get insurance? There are two key things that are playing a part in rising insurance premium costs –
■ The inflationary environment means an increase in the cost of materials to repair or replace property and vehicles. Added to this is a rise
in costs for insurers to run their businesses including compliance, staffing, and insurance assessment costs.
■ Reinsurance premiums (paid by our local insurers to protect themselves from catastrophic events) have escalated. With the Cyclone Gabrielle and Auckland Anniversary claims reported to be over $3.75b, this has driven reinsurance prices up even further.
All these costs then of course get passed on to you as the consumer.
Capacity issues
It is not just rising costs that have become an issue but challenges around capacity or, put simply, just getting insurance. In a nutshell, there is currently more demand than supply of insurance, bringing about yet another upward pressure on the cost of premiums. Not only is property subject to price increases, but insurers are a lot more focused on properties that are at a higher risk of climate-related damage. They are using comprehensive land data to identify individual properties that are more exposed to weather events. This means, for example, a house at the flood prone end of a street could be difficult to insure, and attract a much higher premium, than a similar house at the elevated end of the street. Actuarial consultancy, Finity, recently noted that 25% of properties deemed a high flood-risk faced additional flood premiums of at least $250. In some cases, these premiums were as high as $4,500, though most were under $1,000.
Proceeding with caution
It is unsurprising that insurers have adopted a more cautious stance towards properties situated in coastal areas, areas prone to flooding, or susceptible to landslides. The classification of land by local authorities has introduced an additional unfavourable aspect, particularly
when decisions are delayed, causing uncertainty on the insurability of certain properties. It may be determined, for example, that some Category 2 and Category 3 land is unhabitable due to anticipated landslips or flooding risk.
We anticipate insurers will increase their use of technology to identify high risk locations and conservatively underwrite each risk. This means that their location data will become more accurate and their risk selection more cautious.
Terms quoted by insurers may include higher flood deductibles or excesses, the insured perils might be reduced, site specific terms might be imposed, and premiums will continue to rise.
Where to next?
Capacity issues can be moderated by using a different insurer or additional insurers co-insuring together. Until now, this strategy has mostly been used for larger property owners.
It is where a broker can step in to help, by talking to insurers on your behalf to help you get cover. They can also help with cost reduction by putting insurers under competition on your behalf. There are also other options such as reducing insured perils, introducing higher excess amounts, or switching to instalment-based premium payments. These options are always more prudent than reducing the sum insured or cancelling your cover.
As always, we are here to help. If you have any concerns about the cost of your premiums or how to manage them, please give us a call. icib.co.nz
William joined the insurance industry in 2000 as a commercial underwriter with NZ based insurers before moving into broking in 2013. He now specialises in brokering and risk management, with a depth of expertise in most areas of insurance. William has a focus on transport, forestry, manufacturing, engineering, food processing and expanded polystyrene risks in the Hawke’s Bay and East Coast regions. He is passionate about customer service and delivering the best possible outcomes for his clients, regardless of the complexity of their business risks.
E: william.horvath@icib.co.nz
